Spain: Tax control in Spain - Chebsey & Co

Caught not paying taxes

I recently had somebody contact me about their property in Spain. They had received a letter from the tax authorties in Spain and wanted to know what to do about it. The letter stated that the property owners owed the Spanish tax man taxes relating to the rental of the property. The tax man claimed that the owner had been renting out his property and had not declared the income. This is not surprising as the Spanish authorities are clamping down on tax evasion in an attempt to bring more money into their hands and help fight the economic situation that they find themselves in.

The property owner came to us wanting to discuss what, if anything, he could do about this as he didn’t fancy the prospect of paying out a large amount of money for back taxes and interest. The first question to ask was obvious – had he been renting out the property? Yes he had. He was perfectly up front about this – he had been renting out the property ever since he had owned the property. The second question was whether he had paid any tax on the rental (i.e. was this a simple administrative error by the tax man). No, he hadn’t. In fact he had never paid any income tax in Spain. Third question – does he dispute the amount that the tax man was claiming on the form. Probably not. He had been renting out for many years and the authorities had probably underestimated how much he owed.

So here we have a man who admits that he owns a property in Spain, has been renting the property out and not declaring his income for tax purposes and wants to know what he can do about it despite the fact that by his own admission he probably should pay more tax than has been estimated. Well, in the absence of any reason why he can challenge the demand he can pay the tax.

This story really brought home to me how quickly people fall into bad habits when they buy property abroad. They don’t use lawyers. They don’t use surveyors. They don’t pay taxes. They cut corners and don’t do things properly or the way that they would do “back home”

What this person hadn’t thought about was that he should have also been declaring this income in the UK but hadn’t. It is likely that the Spanish authorities will tell the UK authorities that he has been renting out the property in Spain and hadn’t declared the taxes there and he is likely to have a tax inspection in the UK.

The moral of the story? Tax authorities all over the world are clamping down on tax evasion as a way of bringing in more income in these difficult economic times. At the same time individuals try and save themselves some money by trying to cheat the system and not declaring everything. The tax authorities know this and therefore they know that it is worth them putting in the resources to investigate more than they have done in the past.

Peter Esders

Peter Esders is a UK Solicitor who studied Spanish law in Spain and who has been dealing with Spanish law for over 15 years. He can be contacted at www.chebsey.com